Mphasis – Parag Parikh Research Report

Parag Parikh have recommended investment in Mphasis. The rational for purchase of the share is as follows:

Mphasisreported a good third quarter. Revenue on YoY basis increased by ~15% whereas on QoQ basis increased by ~4%. The YoY PAT growth was around 18%. Margins have declined slightly over the last quarter and by a wider margin over the same period last year. Since the rate card is negotiated every six months, the current impact can be seen due to the recent negotiations during the second quarter of FY10.

There is a good growth in Application Services owing to new clients being added this quarter. 20 Clients were added out of which 15 came through the HP route. ITO business grew as well, on account of the Fortify acquisition as well as organic growth. One new client was added to the ITO business this quarter. As of Q3FY10, ~10% (Rs. 27 Crs) of revenue from the ITO segment comes from Fortify whereas the remaining 90% still comes from the HP channel. This sort of de-risking is usually welcome since Mphasis plans to grow on its own apart from the HP business. The area where Mphasis can significantly leverage its business understanding from HP is ITO. New contracts which they win apart from HP will definitely benefit from this expertise. With a lot more HP people on the board than before, it can be a good strategic position to be in.